The rehab loans for the investors in real estate consist of a unique set of programs. They are customized accordingly to meet the requirements of the fix and flip investor, including numerous features specific to this loan. The traditional hard money loans will not meet the requirement for short-term real estate investors, and different types of products are required here. Therefore, we go through the rehab loan requirements to help you understand the process.
Rehab Loans VS Traditional money
The primary difference between the traditional hard money loans and the rehab loans includes the entire tenure for the prepayment penalties, a fund-controlled rehab account, and a prepaid interest reserve account. These are the features that are there to make sure that the real estate investors have significant success; however, it should make sure the private investor lending funds required by the security while investing their initial trust deeds.
Ensure the total duration
You should check out the differences one by one in the entire term. Several fix and flip loans are somewhere between six and twelve months in the entire duration. These do not imply long-term solutions; however, the smaller ones that allow the investor to acquire, rehab, and sell the property. Several have the extended feature where the loan is extended for a fee at the end of this term. To speak specifically, whenever an extension is required, the project does not go according to the plan.
The prepayment penalties differ extensively through the average hard money transactions. Each kind of loan has its own prepayment penalties of its kind. It can help guarantee the private money investors lending the money as a return. Whenever money is being lent and paid back after a month, the general investor is not going to be happy under single months of the returns for the loans.
These are short-term loans as the goal is a different one. It is for this reason; that they are structured with no prepayment penalties. It involves an entire trade-off for this, although the cost of these comes with no prepayment penalties.
Fund or builder’s control account
The fund or the builder’s control account is quite a vital aspect of the different kinds of loans. It is the trust account or the escrow account wherever money is held for the work being done on the property. Although money is being lent using the repair for the values since it is important to control these funds and make sure that the property improves. Disbursing these funds is widely known; therefore, ensure to discuss it with your representatives and the way you can access the funds for the rehab costs.
Prepaid builder’s account
The final difference is that we are going to look at the reserve for the prepaid interest. Mainly these are the rehab loans set up so that no payments are due for the entire time period. It is the money being financed into the loan and being held with making the monthly payments for the borrowers.
It is the feature that works in conjunction with the builder’s account controls making sure that the borrower is having funds required to enter into it by rehabbing the property list for selling prior to costing more out of your pockets.